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State Health Leaders Defend Overhaul of ‘Broken’ Medicaid System

In an exclusive interview with NCHN, Health and Human Services Secretary Aldona Wos and Medicaid head Carol Steckel defend their critique of Medicaid and talk about their plans for overhauling the program.

By Rose Hoban

New Secretary of Health and Human Services Aldona Wos has had to get up to speed on state government – and fast – since arriving in Raleigh in January.

Now three months into her time in office, Wos and her Medicaid director, Carol Steckel, said they have a vision and a plan for revamping the state’s Medicaid program and putting the Department of Health and Human Services on firm financial footing.

In an exclusive interview with North Carolina Health News, Wos defended her use of the term “broken” to describe Medicaid, the federal- and state-financed program that provides health care to 1.8 million poor, elderly and disabled North Carolinians at a cost of more than $13 billion.

“Last year … we were $450 million over budget,” Wos said. “No matter what industry, no matter what you are doing, you may not be able to peg it exactly on the dime – but at the end of the day, that’s a pretty big spread.”

To be that much over budget, she said, something is not being done right.

Wos conceded that some portion of the Medicaid overruns in recent years could be attributed to the ups and downs of running a government entitlement plan. And she conceded that some of the problem might have been a function of a Republican-controlled legislature pushing back against a Democratic governor, Bev Perdue. But Wos also talked about a longstanding lack of trust between the General Assembly and her department.

One of her predecessors, Lanier Cansler, wrote to lawmakers in late 2011 saying that aggressive budget cuts demanded by the legislature were “unreasonable and unattainable.” Medicaid ended that fiscal year with a $400 million deficit.

And despite changes at the top, deficits continue to be a problem. Steckel detailed to the legislature last month how this year’s Medicaid price tag will be between $90 million and $130 million over budget.

Wos said the General Assembly has been unrelenting in its questioning of her about Medicaid. That, she said, has probably been their “biggest gripe.”

“‘I know you’re new on the block, Madam Secretary,’” she mimicked legislators, with a laugh, as saying. “‘Lovely to see you, but what about the money?’”

The plan calls for managed care companies to create statewide networks of care providers, compete for Medicaid patients and, in the end, drive down costs.

These so-called comprehensive care entities (CCEs) will also be given the task of helping mental health patients get coordinated care for their physical health problems, addressing the needs of the state’s many nursing home residents who receive Medicaid and covering the high costs of treatment for those with disabilities.

Steckel said that Medicaid is very much a product of the era in which it was designed: the late1960s and early ’70s.

“Think about the health care system at that time,” she said. “If we went into the hospital, we either died or went home. I don’t mean to be crude about it, but that’s what happened. We didn’t have chronic illnesses, you didn’t have hypertension, you didn’t have diabetes like you do now. So the system was designed around the physician visit, the inpatient visit.”

But the modern context of Medicaid, Steckel said, renders the traditional fee-for-service system – whereby hospitals and doctors set prices and Medicaid picks up the tab – obsolete. Both she and Wos admitted that there are a lot of missing details, but said they have a goal, and a framework for reaching that goal.

Wos said that creating competition between managed care organizations would be essential to the state getting the best deal possible. But she also conceded that other states’ experiences with Medicaid managed care have been discouraging.

In Oklahoma, two of the state’s three Medicaid managed care companies pulled out of the market after the state declined to increase funding for them. Now Oklahoma is having to revamp its program and is basing it on the model of North Carolina’s not-for-profit Medicaid management organization, Community Care of North Carolina.

And Connecticut recently excluded for-profit insurance companies from its Medicaid program. Officials there said they failed to deliver lower costs or better care.

“We’ve got to learn from those, and we’ve got to learn from the early scorched-earth methodologies of managed care and look at how we create an environment that allows for there to be competition and choice for our recipients but also empowers the networks to be creative and innovative around that person,” Steckel said. “That can be done here in North Carolina.”

“States have tried this before,” said Jonathan Oberlander, a health policy professor from UNC’s schools of medicine and public health. “There’s a pretty big body of literature on Medicaid managed care, and the bottom-line conclusion is that it’s no panacea for cost savings.”

Since the announcement of the plan, many players in the state’s health care community have been reacting, in particular to the prospect of for-profit managed care.

A statement issued by leaders at Carolinas Healthcare System in Charlotte agreed that the state’s Medicaid program needs improvement, but added words of warning.

“This decision ignores the unsuccessful Medicaid HMO five year pilot in Mecklenburg County that was not expanded to any other part of the state,” the statement read.

What role for CCNC?

Many in the health care community – and some in the legislature – were critical of the fact that they weren’t given notice of the shape of the governor’s Medicaid plan before it was announced last week.

“The day after the governor’s announcement, we were on their doorstep. Actually, before,” Steckel retorted. “So I guess, in a way, I almost want to say, ‘What are we apologizing for?’”

Of particular concern to many observers are Wos and Steckel’s plans for Community Care of North Carolina, the not-for-profit that coordinates the care for about 1.3 million of the state’s 1.8 million Medicaid recipients, mostly low-income children, pregnant women and people with disabilities.

According to CCNC officials, the program managed about $5.5 billion in Medicaid expenditures last year and cost the state about $106 million to do the job.

Steckel said the CCNC model would be integral to the success of whatever the final Medicaid plan looks like, but added that the program is not perfect.

“We’ve got such strengths to build on here, and I mean 86 percent [doctors’] participation in the Medicaid program,” she said. “We do not want to lose that.”

Steckel suggested that CCNC could find a way to become one of the comprehensive care entities called for in their plan. But CCNC officials say that could require the kind of capitalization they currently don’t have and would turn CCNC into another insurance company.

Steckel and Wos said the details of how that would happen are as yet unclear.

“The devil is always in the details in a proposal like this,” said CCNC’s lobbyist, John Thompson. “We are working with leadership to examine the details and identify any barriers and problems with it.”

Much of the leadership in the General Assembly supports CCNC, meaning Wos and Steckel may have their work cut out for them in convincing legislators to go along with their plan.

“Other states with co-called ‘competitive contracts’ are having just as many challenges as everyone else,” wrote House Health and Human Services appropriations chair Nelson Dollar (R-Cary) in an email to other lawmakers, as reported in the News & Observer. “We have the foundation to do something truly innovative. I hope we don’t opt for the failures and traps of commercial managed care.”

It is simple. There are 2 ways to control costs. 1) major payer (government) sets the prices, not the healthcare providers, along with utilization reviews to disallow excessive procedures. Or 2) The old capitation system similar to Kaiser Permanente-pay a system for total care. Now that hospitals “own” the doctors, the hospital based healthcare system can run on a capitation basis…We could use many more physician assistants, instead of physicians for many things that are routine, or chronic. We could automate health education, and reward healthy living management for things such as obesity, smoking, etc.. Instead of a physical therapist, we could have “workout” videos. The patient needs some responsibility in all this. More than just increasing what is called healthcare because it pays so well…